Americans continue their march to low-tax states

The United States Census Bureau released its annual state-by-state population estimates for 2018 in late December. It highlights migration trends across the states and sketches a picture of looming political changes that will take place after the complete census of 2020. 

Idaho, Nevada, Utah and Arizona led the way this past year in overall population growth as a percentage of population.

Once again, Texas and Florida were the big winners in overall population gains, with the Lone Star State gaining more than 379,000 residents from 2017-18 and the Sunshine State posting a gain of more than 322,000.

The big net losers from the report were New York, which lost a total of 48,510 residents, and Illinois, which lost 45,116.

These state-by-state population numbers will alter the makeup of seats in the United States House of Representative during the once-a-decade reapportionment and redistricting process that will commence after the 2020 census.   

Political strategists from both sides of the aisle are interested in predicting the state political winners and losers of the next census in 2020. Election Data Services uses several methods to estimate the state-by-state changes to expect in 2020.

According to Election Data Services, the following states are poised to gain seats:

• Texas will gain three, from 36 to 39;
• Florida will gain two, from 27 to 29;
• Arizona will gain one, from nine to 10;
• Colorado will gain one, from seven to eight;
• Montana will gain one, from at-large to two;
• North Carolina will gain one, from 13 to 14; and
• Oregon will gain one, from five to six.

These states are poised to lose seats:

• New York will lose two, from 27 to 25;
• Alabama will lose one, from seven to six;
• California will lose one or remain even, from 53 to 52 or no change;
• Michigan will lose one, from 14 to 13;
• Minnesota will lose one or remain even, from eight to seven or no change;
• Ohio will lose one, from 16 to 15;
• Pennsylvania will lose one, from 18 to 17;
• Rhode Island will lose one, from two to one; and
• West Virginia will lose one, from three to two.

While the national politics of state migration changes might be straightforward, drilling down into the components of the census data and isolating the changes in net domestic migration raises some fascinating implications for state policymakers to address.

Why is it some states continue to attract new residents, while others, year after year, lose residents? While people move for many reasons, there is a strong, positive relationship between a state’s economic competitiveness and its projected likelihood to gain residents.

This relationship indicates how states experiencing higher population growth are generally the same states with lower tax and regulatory burdens, lower government debt and greater transparency and accountability for government spending.

This has been a key theme in the annual Rich States, Poor States report I co-author with Arthur Laffer, originator of the “Laffer curve.”

Using net domestic migration data is helpful for policy analysis since it takes away the effects of birth rates, death rates and international migration and focuses on decisions Americans consciously make as they move from state to state.

Big winners in net domestic migration in the past year include: Florida (+132,602), Arizona (+83,240) and Texas (+82,569). On the losing end we find: New York (-180,306), California (-156,068) and Illinois (-114,154).

This domestic migration pattern of the past year paints a stark picture. Each of the high in-migration states mentioned above enjoy a ranking of sixth, fifth and 14th respectively in the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index.

By contrast, each of the high out-migration states have an economic outlook ranking of 50th, 47th and 48th, respectively.

Our work in Rich States, Poor States has revealed that states without personal income taxes have seen significantly better rates of in-migration than states with high income tax rates. 

Of the nine states with no personal income tax, seven experienced positive domestic migration in the past year, totaling more than 339,000 on net. On the other side of the equation, a majority of states with the highest personal income tax rates experienced net domestic out-migration last year.

Skeptics of the relationship between state economic policy and interstate migration argue that “correlation is not causation.” But, there is plenty of academic research to support the long-running relationship between state migration and taxes.

To make matters even worse for states with high taxes, the passage of federal tax reform at the end of 2017 will likely enhance out-migration. The new tax law included a $10,000 annual cap on the state and local tax deduction.

Starting in tax year 2018, taxpayers in states like California and New York will pay closer to the full cost of their sky-high taxes. Previously, taxpayers in those states could write off their state taxes on their federal taxes and enjoy a subsidy from Americans across the country.

Since that subsidy to high-tax states is partially gone, the effective state tax costs will increase, absent any action from policymakers in places like Sacramento, Albany, Trenton or Springfield.

The continued exodus of Americans away from less economically competitive states and movement toward regions with more hospitable growth remains evident in the new census numbers. 

Americans continue to vote with their feet, and they are voting strongly in favor of those states creating an environment conducive to economic growth and opportunity.  

Original article by Jonathan Williams, chief economist at the American Legislative Exchange Council and vice president of its Center for State Fiscal Reform published in the Hill. A link to it can be found here.